FY24 results: Record cash flow generation

As expected, PAAS enjoyed a strong finish to the year, delivering a 14% q-o-q increase in revenues and a 29% increase in EBITDA in Q424 on strong silver sales and higher commodity prices. For the full year, the company reported revenues of US$2,819m, EBITDA of US$1,029m and adjusted EPS of US$0.80. Despite lower silver and gold sales and higher costs in both segments versus FY23, stronger gold/silver prices resulted in record operating cash flow of US$724m (FY23: US$450m; Q424: US$274m) and free cash flow of US$401m (FY23: US$71m). As a result, the company moved to a net cash position of US$84m at end FY24.

Strong commodity prices outweigh neutral guidance

In 2025, PAAS expects to produce 20–21Moz of silver (FY24: 21.1Moz) and 735–800koz of gold (893koz) at a silver segment all-in sustaining cost (AISC) of US$16.25–18.25/oz (FY24: US$19.0/oz excluding net realisable value, NRV) and gold segment AISC US$1,525–1,625/oz (US$1,501/oz excl. NRV). As usual, production is expected to be second half weighted and unit costs are guided to reduce gradually throughout the year. We have updated our estimates to reflect the results, FY25 guidance and higher consensus commodity price expectations, reducing our FY25 EBITDA estimate by 2% to US$1,220m. We expect further improvements in cash flow generation during the year, potentially leading to higher dividends in H225.

Valuation: Maintained at US$26.0/share

Having updated our estimates, we retain our DCF-based valuation of PAAS at US$26.0/share. Our slightly lower FY25 earnings expectations were offset by the small reduction in WACC due to lower equity risk premium (Damodaran), inclusion of the La Arena gold net smelter return (NSR) royalty valued at US$30m (PAAS) and the company moving to the net cash position at end FY24. The stock is currently trading at an FY25e EV/EBITDA of 6.4x, which we view as an undemanding multiple both historically and compared to peers, and yields 1.8%.

FY24 results: Big step up in earnings and cash flow generation

PAAS has finished the year on a high note, delivering a 14% q-o-q increase in revenues to US$815m and a 26% increase in EBITDA to US$347m in Q424, driven by higher silver and gold sales and stronger commodity prices. Silver production and sales were up 10% and 15%, respectively, while gold sales grew 4% despite flat production. At the same time, silver segment cash cost fell from US$15.9/oz in Q324 to US$14.1/oz on the back of the strong operational performance at La Colorada and Cerro Moro. The former saw a 24% q-o-q reduction in unit cash cost to US$15.0/oz as it continued to ramp up production following the completion of the ventilation infrastructure upgrade in mid-2024, while the latter enjoyed a 61% drop in cash cost to US$7.4/oz, mainly due to higher by-product gold sales. In the gold segment, El Penon and Minera Florida performed strongly both in terms of production/sales and costs, while Timmins detracted from the overall performance. As a result, the gold segment cash cost was up 2% q-o-q in Q424 to US$1,223/oz.

For the full year, the company reported revenues of US$2,819m (Edison: US$2,834m) and EBITDA of US$1,029m (US$1,016m). Total silver production and sales came in at 21.1Moz (+3% y-o-y) and 19.5Moz (-7%), respectively, while gold production and sales were 893koz (+1%) and 892koz (flat). Silver sales were somewhat below our expectations (19.9Moz) and the company ended the year with a total silver inventory build of c 0.5Moz. Silver segment cash cost increased 9% y-o-y to US$14.3/oz; gold segment cash cost was up 8% to US$1,203/oz. Production for both metals and gold segment costs were within the company’s annual guidance, while silver segment costs were slightly above the upper end of the guided range. At the consolidated level, G&A expense came in at just US$70m (Q424: US$6.3m), with the company successfully capturing c US$60m in synergies targeted as part of the Yamana transaction. PAAS reported FY24 headline EPS of US$0.31 (Q424: US$0.30). Adjusted for one-off and other non-cash items, FY24 EPS was US$0.79 (company definition; Edison: US$0.80) compared to US$0.12 in FY23. A dividend of US$0.10/share was declared for the quarter, translating into a full-year payout of US$0.40/share.

The main highlight of the results was record cash flow generation, with net operating cash flow (OCF) of US$274m in Q424 and US$724m in FY24. Full-year free cash flow (OCF less total capex excluding lease payments) was an impressive US$401m (Q424: US$189m). Strong cash flow generation plus higher proceeds from the sale of La Arena resulted in an US$463m increase in cash to US$863m. As a result, the company moved into a net cash position of US$84m (including short term investments) at end FY24 versus our estimate of US$26m.

FY25 guidance: Mixed initial impressions

With the FY24 results, PAAS has also provided its FY25 operational and cost guidance. The company expects to produce 20.0–21.0Moz of silver and 735–800koz of gold this year. Compared to FY24, higher production at La Colorada (5.5–5.8Moz vs 4.9Moz; higher throughput due to improved ventilation conditions) and Huaron (3.7–3.9Moz vs 3.5Moz; higher throughput and silver grades) is expected to offset lower output at San Vicente (2.7–2.9Moz vs 3.1Moz; lower grades, scheduled plant maintenance) and Dolores (residual leaching stage). Gold production will be affected by the sale of La Arena and the reduction in output at Dolores. Although lower gold production was to a large extent anticipated, guided silver output is below our initial expectations. While the company still guides for La Colorada to achieve its nominal 2,000tpd throughput rate during 2025, we expected it to occur earlier, in late FY24/beginning FY25. As per management’s comments during the results call, we understand that this is mainly due to additional development work that will result in higher strip ratio (ie the share of waste removal to ore extraction). Overall, as always, production is expected to be second-half weighted, resulting in a gradual reduction in unit costs throughout the year (see Exhibit 2).

In terms of costs, silver segment AISC is expected to reduce from US$18.7/oz (US$19.0/oz excluding NRV inventory adjustment) in FY24 to US$16.3–18.3/oz, driven by La Colorada (higher production) and Cerro Morro (higher gold by-product credits). At the same time, cost performance at La Colorada will be affected by additional payments due to mining concessions adjacent to the project. The gold segment AISC is guided at US$1,525–1,625/oz, a moderate increase compared to US$1,530/oz (US$1,501/oz excluding NRV adjustment) in FY24, driven by the anticipated cost escalation at Shahuindo and Timmins.

2025 capital expenditure guidance of US$374m is broadly in line with FY24. This includes US$90–100m in project capital, of which US$39–42m is expected to be spent on further advancing the Skarn project. Other notable project investments include Jacobina (US$11.0–12.5m), where the company continues to advance its mine and plant optimisation study, with some results likely to be announced around mid-2025.

Estimates revisions and valuation update

We have updated our operating and financial estimates to reflect the FY24 results and FY25 guidance. We have reduced our silver and gold production for FY25 and increased our cost estimates for both segments. At the same time, these changes were largely offset by higher consensus gold and silver price expectations. As a result, our FY25 EBITDA estimate is only 2% lower, at US$1,220m. We have also introduced our FY26 forecasts, which point to a broadly flat EBITDA, with lower expected commodity prices offset by higher silver production and a gradual reduction in costs in both segments. We note that the company’s FY25 cost guidance is based on gold and silver prices of US$2,650/oz and US$30/oz, respectively, compared to the current consensus expectations of US$2,730/oz and US$32/oz, which we use as our modelling assumptions. As such, our FY25 cost forecasts are at the lower end of the company’s guidance range, with the silver segment AISC of US$16.3/oz and gold segment AISC of US$1,520/oz. Higher commodity prices result in higher by-product credits for some of the mines.

Overall, PAAS has seen a visible step up in earnings and cash flow generation in FY24 and, subject to commodity price fluctuations, we expect to see further improvements in FY25. Our modelling suggests an increase in OCF from US$724m in FY24 to US$885m in FY25e, leading to an increase in gross cash position to US$1,197m (FY24: US$863m) and a further expansion in net cash to US$418m at year-end. This should allow the company to continue investing in its key projects, participate in selective M&A and distribute more cash to shareholders. We conservatively model an increase in the FY25 dividend to US$0.44/share (FY24: US$0.40/share) based on the company’s current dividend policy. On top of this, PAAS continues with its EPS accretive share buy-back programme, having purchased an additional 0.91m shares at US$22.0 in January 2025.

We have retained our DCF-based valuation of the company at US$26.0/share. Our small downward adjustments to earnings estimates are offset by the reduction in nominal WACC from 7.2% to 6.9% (long-term real discount rate of 4.4%) due to the lower equity risk premium (as per Damodaran), the company moving to net cash position at end FY24 as we rolled our model forward and the inclusion of the La Arena gold NSR royalty, valued by the company at US$29.7m. On a relative basis, the stock currently trades at an FY25e EV/EBITDA of just 6.4x, in our view an undemanding multiple both historically and compared to peers, and yields 1.8%.